The intraday behavior of information misreaction across various categories of investors in the Taiwan options market

Sophistication, Sentiment, and Misreaction

“…10 Following the previous studies that motivate our investigation, we relax the assumption on uniqueness of the pricing kernel for our empirical analysis. 11 Consistent with the prior studies (Chang et al (2013), Jiang and Tian (2010)) that primarily involve an exploration of the variations in model-free option implied volatility, which to some extent reflects the expectations of investors on future volatility, 12 our empirical results on the marketwise transactions provide no significant evidence of the existence of either market misreaction or a sentiment effect in the options market. However, when we assume the existence of a pricing kernel for each subset of investors and then explore the transactions of alternative types of investors using two alternative sentiment indices compiled following the approach of Baker and Wurgler (2006), we find that individual investors exhibit significant misreaction to information and that such misreaction becomes more pronounced during periods of high investor sentiment.…”

“…The risk-free rate is set at the average deposit rate for the five major banks in Taiwan (the rate offered by the Central Bank of Taiwan). We report 15 Our sample period is much longer than that Chang et al (2013), which ends in 2006. 16 Options contracts with maturity periods outside this range are usually found to be illiquid.…”

Option trading after the opening bell and intraday stock return predictability

“…Previous studies examine between 39 and 500 stocks(Anand & Chakravarty, 2007;Chakravarty et al, 2004;Christoffersen, Goyenko, Jacobs, & Karoui, 2018;Easley et al, 1998;Muravyev, 2016). Hu (2014) examines a large U.S. sample, but the majority of his analysis is at the daily level Chang, Hseih, Tang, and Wang (2013). andChang, Hseih, Tang, and Wang (2015) study large samples of options trading in the Taiwanese market Hao, Lee, and Piqueira (2013).…”

“…Hu () examines a large U.S. sample, but the majority of his analysis is at the daily level. Chang, Hseih, Tang, and Wang () and Chang, Hseih, Tang, and Wang () study large samples of options trading in the Taiwanese market. Hao, Lee, and Piqueira () examine options on 60 Taiwanese stocks.…”